Microinsurance Overview
Microinsurance serves as a financial tool to assist low-income entrepreneurs mitigate risks while protecting them from financial emergencies that threaten their incomes.
Currently, each country has its unique definition for what constitutes a low-income entrepreneur and a low-premium insurance product. It's recommended that definitions for what constitute microinsurance services be defined at the regional, not country level.This will allow for greater collaboration in how this financial service is designed and delivered to markets ensuring better regulation and a reduction in administrative fees. With effective use, microinsurance can help Micro-Small and Medium Enterprises (MSMEs) to become more resilient against economic shocks and generate increased investments in these vulnerable businesses.
Image sources: Multilateral Investment Fund Member of the IDB Group, GIZ - Deutsche Gesellschaft für Internationale Zusammenarbeit
Coverage by Product and Region
A 2007 study conducted by the MicroInsurance Centre estimated that the total number of lives covered by microinsurance services in the Americas, Africa and Asia exceeded 78.5 million. The products were classified as the following: Life, Health, Accident & Disability, Property & Index.
- Life Insurance- The easiest microinsurance service to distribute.
This product is relatively straightforward to price, resistant to problems of fraud and isn't dependent on the existance of well-functioning infrastructure like hospitals.
Product sub-types: Continuing Family Benefits, Credit Life, Credit Life Plus, Endowment, Funeral, Investments, Pensions, Term - Health Insurance- The most in demand microinsurance service.
Provide insurance in the event of a health problem which can result in income loss because of high treatment costs or loss of household labor.
Product sub-types: Comprehensive, Health (Other), Hospitalization, Primary, Targeted Benefits - Accidental Death & Disability Insurance- One of the fewest offerings by commerical insurers.
In many poor countries, accidental death is common and ensuring this peril can be cheap for the policyholder but profitable for the insurer.
Coverage for temporary disability are often provided after limb dismemberment and paired with life products that are sold with microcredit.
AD&D coverage is very popular in South Asia with India having the largest market share. - Property & Index Insurance- The least used microinsurance offering.
Property insurance protects against property loss due to enviornmental risks.
Low income entrepreneurs live in poorly constructed homes in enviornmentally insecure places that are prone to natural disasters like flooding or mud slides.
Index insurance refers to weather-based risk managment instruments like crop insurance. These products are the newest offerings and lack data and extensive research.
Microinsurance Coverage in the Americas
The total number of individuals insured in the region is more than 50 million with life insurance being the most popular product. A 2013 study found that there were 94 providers from 21 of the 32 countries assessed that reported microinsurance activity. The volume of coverage by product type is more than the total covered lives meaning that many people are protected against more than one type of risk.
Source: The Landscape of Microinsurance in Latin America & the Caribbean by Micrinsurance Network, MunichRe Foundation, Microinsurance Centre (2015 - ISBN 978-99959-936-1-0)Microinsurance Coverage in Africa
This region has an estimated microinsurance market of more than 700 million people. According to the World Bank, the annual income for this group exceeded 500 billion USD in 2007. The landscape survey concluded that 14.7 million African lives were covered by microinsurance, resulting in 257 USD in received premiums. A majority of providers surveyed in the region expected their national market to grow by over 10% in the coming years with 40% of participants expecting market penetration to double in the next five years.
Source: The Landscape of Microinsurance in Africa by International Labour Organization (2010 - ISBN 9789221233497)Microinsurance Coverage in Asia
Microinsurance coverage and premiums generated a compounded annual growth rates of 31% and 47% from 2010 to 2012. India is the main growth driver.
Although microinsurance is popular in Asia with about 1.66 billion individauls and properties covered by social microinsurance in 12 Asian countries, this financial service is in it's infancy in countries in Oceania like Fiji and Papua New Guinea. In Asia, coverage growth continues but as of 2013, only about 4.4% of entrepreneurs living in region were covered under the microinsurance sector.
